Welcoming Spotify into the family

Spotify. A music streaming service that has been the subject of many blogs already. But why not, as it is one of the largest streaming services currently out there. Having around 50 million users, from which 10 million are paying for subscription. Including me.
I started using Spotify 2,5 years ago. Starting with a free trial and moving on to paying subscriber. Yesterday Spotify introduced a new concept to increase the amount of subscriptions: Spotify Family.

When using Spotify there always were two ways. 1) ad free, offline available and HD sound and pay €9.99 a month. Or 2) Enjoy all the songs available with ads and no offline availability but stay free. Now with Spotify Family a third option is added. The concept is easy: The first subscription is normal priced (€9,99) but every extra subscription will save 50%. Compared to multiple individual accounts you’re able to save quite some money, however Spotify does set the limit to a maximum of 5 subscriptions.

Why would you upgrade?
Having a premium account is awesome and all but when you’re kind enough to share your account (or roommates steal your laptop) you’re going to encounter interruptions. Spotify Family is a perfect solution to enjoy the service continuously with multiple persons for relatively lower costs. Another reason that Spotify adds is that you’ll be able to separate the ‘my little pony’ playlist for a daughter from the 60’s collection from a father.

Is it worth your money?
Spotify family is a great way to attract more customer for premium subscription and can be worth the money. It could have potential for friends or roommates who are listening more often at the same time. For a family, the actual target, the question remains whether they listen as often en long as five separate individuals. Because I doubt it.

At the moment Spotify family isn’t available yet in The Netherlands, as it’s being launched in the coming weeks. Spotify does react to the demand of the users by creating Spotify Family. But in the end, the concept is a excellent example of framing which of course is also meant to create some extra revenue.

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One response to “Welcoming Spotify into the family”

The example of Spotify Family is a good indication of how the company is using bundling in order to attract more users, and revenues. As was described in the example Spotify Family is sold for the sale price as a regular subscription for the first subscriber (€9,99) mad reduces subsequently to €4,50 for every other user within the family. The pricing of Spotify’s value proposition can be seen as a multipart pricing scheme.

Goh et al (2012) show what the effect is of higher initial cost and a reduction in price of additional products within a bundle in a multipart pricing scheme on actual purchases. The results show that the higher the initial cost, the lower the amount of people buying the bundle but the more products within each bundle are chosen. The example of Spotify shows that they have chosen for a relatively low ‘fixed’ bundle price as it is the same as a singular subscription. It is thus trying to attract more customers in first instance. Another strategy of Spotify could have been to increase the initial ‘fixed’ price to €15 and subsequently lower the amount paid per additional family subscription. Based on average family size (it seems the concept of family also includes a group of friends) this price should be set in a way that optimizes revenues given more of this second tier subscribers given less bundles which are subscribed to. In other words, the loss of revenues from less bundles sold should be offset by a) the initial fee and b) the increase of second tier subscribers.

What can be seen from the example is that Spotify has chosen the strategy of low initial subscription fees which reduces the value of the overall bundle. In this way Spotify tries to attract more users of the bundle. I think this strategy might cannibalize revenues Spotify can earn as the bundle price is the same as a single subscription. This means it is always more valuable to choose for the bundle option. Spotify thus discounts the value of the bundle at all. The company should reward the option of choosing for the bundle while at the same time reaping the benefits from it. It should therefore increase the initial bundle price and decrease the second tier subscription price even more.

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